What is Principle of Polarity?
'Price itself is the most important and reliable indicator'. If you can master the art of understanding price action, you are good to go. However, to understand the price action, the single most important concept you must grasp is the Principle of Polarity. This is the most widely applicable principle in the field of technical analysis. The polarity principle is also extremely simple and easy to understand. But before we get our hand on this principle, we must understand what are support and resistance.
Support is a level in a declining market trend where there is a temporary halt due to more buying pressure than selling pressure. These are the troughs in the market. They are reaction lows where the demand overwhelms the amount of supply. Since there is enough buying pressure here to overcome any selling that there might be at this level, the result is a pause in decline where prices then reverse back up again.
Resistance is the exact opposite of support. Resistance is a level in a rising market where there is so much more selling pressure than buying pressure that there is a temporary halt in the uptrend. These are the Peaks in the market, or reaction highs where supply exceeds demand. Since there is enough selling pressure here to overcome any buying, prices stop rising and reverse back down again. A break above resistance is considered to be bullish while a break below support is considered to be bearish.